Fidelity Global Special Situations

Heather Ferguson | Mon 24 September 2018

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• Jeremy Podger seeks to exploit share price weakness caused by other investors misunderstanding a company's valuation or underestimating its growth potential
• Investments in technology and financials companies have contributed positively to recent returns
• While performance has been good, we currently favour other managers for the Wealth 150 list of our favourite funds across the major sectors

Our view

Jeremy Podger previously managed a global fund at Threadneedle before taking over this fund in March 2012. Over his career, he has showed some ability to outperform, though this had not always been consistent. The fund’s performance has improved under his management; however, we currently favour other global fund managers that have consistently demonstrated stock selection skill for the Wealth 150 list of our favourite funds across the major sectors. We will continue to monitor the manager and will inform investors if our views change.

Please note, the manager has the flexibility to use derivatives and to invest in emerging markets, both of which add risk to the fund.

Portfolio review

Jeremy Podger seeks to exploit share price weakness, often caused by other investors misunderstanding a company's valuation or underestimating its growth potential. The companies in which the manager invests fit within one of three categories:

Exceptional Value – 44% of the portfolio

These are companies where the manager has identified a catalyst that he believes could drive a company's earnings growth ahead of expectations. Citigroup is an example. The US based bank has a significant presence in emerging markets, which is a high-growth area, and has been experiencing improved earnings and a strengthened balance sheet.

Corporate Change – 34% of the portfolio

These are businesses that are undergoing change, whether through restructuring, M&A or spin-offs. Royal Dutch Shell is a current example. The acquisition of BG Group enhances the businesses overall portfolio and creates economies of scale. The business is also undergoing a multi-year restructuring program, with a focus on cost control and cash generation.

Unique Businesses – 24% of the portfolio

The final portion of the fund is invested in unique businesses, with a dominant industry position, strong growth and the ability to raise prices without reducing demand. These holdings have tended to be held for a longer period than stocks in the other two categories. Walt Disney is a current example. This US entertainment business has a powerful brand and dominant TV franchises in US sports, entertainment and kids, and continued growth potential.

Performance

Jeremy Podger assumed management of this fund in March 2012. Since this time, it has risen 135.8% compared with 108.7% for the FTSE All World Index and 92.3% for the average fund in the sector, although please remember past performance is not a guide to future returns.

Past performance is not a guide to future returns. Source: Lipper IM *to 31/10/17

At 24.6% technology companies are well represented within the portfolio, which has been to the benefit of performance as the sector has performed well over the past year. The manager’s strong stock selection within the sector has also contributed positively to returns. An investment in Nvidia, a graphics chip maker, has performed particularly well as the company experienced strong growth from a number of different areas including gaming and car computers. Japanese semiconductor manufacturer Sumco, another key contributor, has benefited from improved investor sentiment around an expected increase in demand for silicon wafers from smartphone makers.

Elsewhere, the fund’s investments in US financials companies benefited from the prospect of higher profitability due to rising interest rates, and the potential for reduced regulation under Donald Trump’s government. Investments in Citigroup and Citizens Financial Group performed well. In Europe, an investment in Commerzbank also performed well as investors acknowledged its improving balance sheet.

Meanwhile, the fund’s investments in consumer good companies, such as Koninklijke Ahold Delhaize and Molson Coors Brewing, have detracted from recent returns. The former, a Dutch supermarket that operates across Europe and the US, performed poorly on the back of pressure from its competitors and food deflation in the US. The manager remains optimistic as he expects mergers to bolster the business through this period of weaker demand.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.